Provision:

As per 196(3) No company shall appoint or continue the employment of any person as managing director, whole-time director or manager who is below the age to twenty-one years or has attained the age of seventy years:

Provided that appointment of a person who has attained the age of seventy years may be made by passing a special resolution in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such person;

Note:

As per proviso it’s clear that if at the time of appointment age of person is more than 70 year then by passing of Special Resolution that person can be appoint as Managing Director. But now question is IF person attain age of 70 after appointment during his tenure then what are the consequences?

Hon’ble High Court of Bombay had decided following issues in case of Ultramarine & Pigments Limited v/s Mr. Rangaswamy Sampath

Whether there would be a mid-stream disqualification for the Managing Director on attaining the age of 70 years?

There is no mid-tenure cessation of Managing Directorship as a result of Section 196(3) (a).

All that Section 196(3) (a) does is to sound a note of caution in the public interest and to demand from the company a special resolution when a person who has already crossed the age of 70 at the date is proposed to be appointed or reappointed.

The impact of the word “continue” in Section 196(3)(a) is as regards cessation under section 196 (3) (b), (c) and (d) of CA, 2013 where there is immediate cessation on the happening of the events in these clauses. As regards Section 196 (3) (a) of CA, 2013, the word “continue” in this sense shall apply to appointment and reappointment.

Therefore, attainment of age of 70 year after appointment is not mid-stearm disqualification.

♥ The arguments of the counsel of the Plaintiff: Once person attain age of 70 year even existing appointment of Managing Director would effectively be interrupted mid-tenure, since the holder of this office had crossed the age limit of 70.

The statutory intent is that the shareholders of the Company should know and be informed of the compelling reasons, why somebody over the age of 70 should hold office as a Managing Director.

Any other interpretation would have the effect of nullifying the statutory and legal intent. Where the words of a statute are plain and clear, the language of the statute should not be changed by judicial interpretation, nor should words or meanings be imputed that plainly do not exist.

Observations of High Court:

2nd Defendant was already the Chairman and Managing Director of the 1st Defendant (the company) when he turned 70. The CA 2013 cannot operate as an immediate termination of his appointment.

Is the age of 70 an absolute bar? A public limited company may well appoint a person of 80 years of age as a Managing Director. All that is needed is a special resolution. That is what the proviso plainly says. Therefore, it’s not a absolute bar.

In fact, it is the proviso that perhaps yields a clue to how the word ‘continue’ should be interpreted in Section 196(3)(a). No special resolution would ever be required to ‘continue’ an appointment. A special resolution is only required for an appointment or a reappointment. This is entirely distinct from the three situations contemplated under Section 267 of the CA 1956, the same as those in sub-section 196(3)(b the CA, 2013. Those provide for eventualities that must result in an instantaneous cessation of Managing Directorship.

The only conclusion that one can draw is that the word ‘continue’ is correctly used in its strict sense in relation to clauses (b), (c) and (d) of Section 196(3), i.e., as a cessation eo instante on the occurrence of any of the events those sub-clauses contemplate, but in the context of Section 196(3)(a), it means, and can only mean ‘appointment’ and ‘reappointment’.

It also does not interrupt the appointment of a Managing Director appointed after 1st April, 2014 where at the date of such appointment or re-appointment the Managing Director was below the age of 70 years but crossed that age during his tenure.

Comment:

According to the defendant if a person who is of the age of 68 years is appointed after 1st April 2014 for five years, he shall not continue after two years once he attains the age of 70 years. The court did not agree to thisview either and gave a judgment that the age is relevant only on the date of appointment and not anytimelater.

While conducting secretarial audit of a company, the practicing company secretary shall keep this judgment inview while ascertaining compliance with provisions of Section 196 of CA, 2013 by the company.

My View:

As per the decision of Hon’ble Bombay High court, attainment of age of 70 years after appointment is not a result of mid-term disqualification of Managerial Personnel.

But as per my understanding Company is required to pass Special resolution before attainment of age of 70 year or subsequent General Meeting of Company held after attainment of age of 70 year to continue as Managerial Personnel of the Company.

Company can also pass special resolution even at the time of appointment if the director who is to appointed is going to attain age of 70 years during his tenure.

CS Divesh Goyal(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

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